EXCHANGE

Hokitika Guardian, 21 June 1930, Page 8

EXCHANGE

NEW ZEALAND’S POSITION

In his address to shareholders of the Bank of New Zealand at Wellington on Friday, the Chairman made the following references to the exchange position. In considering the exchange question, it will lie necessary to draw vour attention to conditions existing in Alls tralia as well as in this Dominion.

For several months past Australia has been experiencing a period of severe financial exchange difficulty. Her accumulated funds in London have keen seriously depleted, and importer'-' are finding it no easy task to arrange for payment of imports. The cost of London credits, following the inexorable law of supply and demand, has increased to an extent unknown a few years ago, involving a heavy burden on importers and their customers. A year ago the cost of telegraphic transfer, Australia to London, was I per cent.: it has increased by stages until officially it-sands at fit per cent.. '">ugb as much as 8A per cent has in some instances been paid to private sellers.

This state of affairs has been

’•rnnght about mainly by the slump in •>x"ort va.lurp of primar/v products, hut a collapse in values is by no means Hie only cause. The inability of the "'-mimonwealth Government to borrow 'abroad, (except at excessively high rates) the fresh funds necessary for development purposes and, to provide rapidly increasing interest charges, has immensely aggravated the exolinnge position As a means to the curtailment of imports, the Australian Government has largely increased Customs duties, but until this practically prohibitive increase • has taken effect and prices of produce materially improve, the Ausrra'inn London Exchange position is unlikely to ease.

It is claimed by certain Austalinn """Vers that there was no need for such drastic action on the part of the ' 'oviu-nment, since the hanks were confolling the position by regulation exliange rates ,so that equilibirum would time have been thereby attained. There is much in favour of this contention. for. exchange rates would necessarily have been raised until a balance was arrived at, and exporters •>f primary products would have .materially benefited. For instance, at the present moment, witli the telegraphic exchange rate in London at (> 1-8 per -ent in favour of the Australian exporter, for every £IOO worth of Ausfralian products shipped to London the exporter receives £IOO 2s fid, and this extra £6 2s fid per cent, to that extent compensates him for the serious drop iu values that has recently taken place. New Zealand, for a period of seven wars ended 31st March, 1929, had an excess of exports over imports of £3(3,"°fi fißl, an excess which had mater'ol.lv assisted to preserve her financial ormililnium. Gi the same period, how--'Vo|-_ her interest on external loans •in’onntcd to over £'13.000,000.

During last year interest charges •viyablp in London have been inreased '•onsiderahly by interest on new loans •Mid by increased interest on renewed maturing loans. The New Zealand exchange position with London is at present at 6 per ’cent, premium for selling telegraphic transfers,—a situation brought about to some extent by our relationship with Australia, but chiefly by diminution in the value nf our exports. In 1924, New Zealand telegraphic .exchange on London stood at a selling premium of per cent., a figure that had not been equalled for many years. - t'Lis was owing to abnormal conditions then ruling. In that year imports exceeded exports by £19,263,910. Alhough for the year ended .March last imports wore near a parity with exports, as disclosed hv the figures of the Customs Department, it is certain ’•at the amount actually realised for our exports has been very much less than the value declared at time of •diipmcnt. It must also he remembered that interest amounting to something like £8,200,000 on Government and Local Body Loans raised in London. has annually to he paid there, binder such conditions, the exchange 'Position will he difficult for some time to come.

A number of importers who must advantage of seasonal offerings, r nleulating their requirements on last ""nr’s business, have apparently overnurchnsed, and the goods may have to remain on their shelves for some time er I'a disposed of at a loss. You no doubt noticed thfat in recent Government statements. Die public revenue from Customs dutas for the financial year ending 31st March was considerably greater than was anticipated; it apnears. therefore, that with large stocks on hand, importations during the coming year—and as n consequence. Government revenue—• must be considerably lessened, unless urMorseen circumstances arise.

We have been able to supply all our own customers’ exchange requirement •'ini anticipate being able to continue

'lniiirr so, though our resources in London have boon considerably depleted. <l”p largely to exceptional transactions on account nf our Government. Nothwitbstnnding tho fact that the ’'resent London exchange rate is extremely high. the position in New Zen'”’(l ’s rolativclv stable when emu "a r--1 w :, h fhoj of certain oilier counfr : cs wlicr - * exchange fuctuafps from dnv to day, rising and fallin<to an extent unusual in purely British emmunities.